CONSULTATION PAPER ON INTERNET PRICING

1. The Telecom Regulatory Authority of India (TRAI) received on 15 October 1997 a proposal from the Telecom Commission regarding tariffs for internet services (applicable to both Department of Telecommunications and Videsh Sanchar Nigam Limited). That proposal suggests a restructuring of internet tariffs for TCP/IP dial up services in order to promote the use of internet services. The proposed tariffs are as follows:

Type of Plans	Duration For 1 Year	New Tariff(Rs.)	Existing Tariff(Rs.)
Plan I	100 hours	3,000	--
Plan II	250 hours	6,500	--
Plan III	500 hours	10,000	15,000

Incremental subscription in steps of 20 hours each at a rate of Rs. 30/- per hour.

2. The basic objectives behind the suggested reduction in internet tariffs are economies of scale and promotion of internet services. Also, the suggested scheme would allow participation of subscribers requiring lesser number of hours than the slab of 500 hours per annum that is currently being provided.

3. It is further explained that:

Tariff for internet service was initially fixed by Videsh Sanchar Nigam Limited (VSNL) from 15 August 1995 assuming a total of 2,000 dial-up subscribers for a period of one year. The capital cost of equipment and networking cost at that time was estimated at Rs. 3 crore.

After one year it was seen that the customer response was very good, resulting in economies of scale. Hence, in September 1995, VSNL fixed the tariffs for TCP/IP accounts at Rs. 15,000 for 250 hours.

The customer base continued to increase, resulting in further economies of scale. Then, from 15 June 1996, VSNL effectively halved the TCP/IP tariff by increasing the number of hours of subscription to 500 hours without altering the tariff.

The present proposal for further reduction in tariff is primarily for the purpose of implementing the Government's promotional approach towards internet services in the country.

4. Comments on the suggested internet tariff structure should be provided to the TRAI latest by 1 December 1997, keeping in mind also the recent policy changes for the internet sector.